Gildan Activewear Inc.
) soared to a new 52-week high of $55.29 on Friday, May 2, 2014
after the company posted better-than-expected second-quarter
fiscal 2014 bottom-line results and provided an upbeat earnings
guidance for the fiscal. The stock closed trading at $55.06, up
6.4% from the previous day's price.
Gildan's second quarter earnings increased 8.5% year over year
to 64 cents per share and came in line with previously provided
higher-end guidance. This marked record second quarter earnings
for the company in any fiscal year. Moreover, the company's
quarterly earnings came a penny ahead of the Zacks Consensus
The year-over-year improvement in earnings came on the back of
strong sales recorded at both of its business segments, partly
offset by increased cotton costs.
Net sales of this activewear retailer climbed 4.9% to $548.8
million but marginally fell short of its previous forecast of
achieving over $550.0 million. Moreover, it missed the Zacks
Consensus Estimate of $555.0 million. Despite weak retail
conditions during the quarter due to colder weather in the U.S.,
Gildan's top-line benefited from strong sales of underwear,
higher demand for international lifestyle brands and increased
sales of international Printwear.
Gildan's gross profit marginally increased to $153.2 million
from $151.2 million in the year-ago comparable quarter whereas
gross margin contracted 100 basis points (bps) to 27.9%,
reflecting the effect of higher cotton costs, partially offset by
increased selling prices at the company's Printwear segment.
Selling, general and administrative (SG&A) expenses
declined 5.8% year over year to $69.3 million while as percentage
of sales it fell 150 bps to 12.6% from 14.1% in the prior-year
period. Lower variable compensation and benefit from weak
Canadian-dollar exchange rate at corporate head office lead to a
year over year decline in SG&A expenses.
The company's operating profit advanced 9.1% to $83.9 million
with margins expanding 60 bps. The improved operating results
mainly benefited from lower SG&A expenses as a percentage of
sales partially offset by lower gross margin.
Sales at the company's Printwear segment improved 2.9% to
$378.5 million, reflecting an increase in selling prices and
favorable product mix. The segment's operating income increased
5.6% to $92.2 million while as a percentage of sales it improved
60 bps to 24.3%.
At the Branded Apparel segment, sales rose 9.9% to $170.3
million, primarily driven by increased customer demand for Gildan
brand's undergarments and higher shipments of global lifestyle
brands. The segment's operating income, however, remained almost
flat at $13.3 million compared with $13.4 million in the year-ago
comparable quarter. Further, operating margin contracted 80 bps
to 7.8% as the benefit from increased sales and leveraged
SG&A expenses were more than offset by higher cotton costs
and short-term manufacturing inefficiencies.
Gildan ended the quarter with cash and cash equivalents of
$58.6 million. Its long-term debt stood at $148.0 million.
Further, to sponsor the occasional rise in inventories in order
to meet anticipated consumer demand, the company used its free
cash flow worth $79.9 million. Finally, the company incurred
$85.8 million as capital expenditure in the second quarter of
The Canada-based company re-affirmed its previously provided
guidance for fiscal 2014 in which it envisions adjusted earnings
to lie in a band of $3.00-$3.10 per share, which is up
11.5-15.2%, compared with fiscal 2013. The Zacks Consensus
Estimate for fiscal 2014 stands at $3.06, lying within the
company's currently predicted band.
However, the company raised its net sales forecast for the
fiscal to $2.40 billion from the earlier projection of $2.35
billion. Printwear sales are expected to be $1.55 billion and
Branded Apparel sales to be $850 million, for fiscal 2014, up
from the previous guidance of $1.5 billion and $825 million,
Further, the company anticipates capital expenditures to touch
the higher end of the earlier guidance range of $300-$350 million
during the year, mainly for yarn-spinning, making upgrades to its
existing facilities, continuing to invest in its new
manufacturing facility and other energy saving projects.
Moreover, it now expects free cash flow to remain at the lower
end of previous guidance of $50-$100 million during fiscal
For the third quarter of fiscal 2014, the company envisions
earnings of 95 cents per share, in line with the year-ago
quarter. Net sales for the quarter are expected to rise 14% to
Gross margins are anticipated to be pressured in the third
Management announced a cash dividend of 10.8 cents per share
to stockholders of record on May 15, 2014, payable on Jun 9,
Other Stocks to Consider
Gildan currently holds a Zacks Rank #3 (Hold). Other
better-ranked stocks in the Textile-Apparel retail space worth
Columbia Sportswear Company
). While Columbia Sportswear holds a Zacks Rank #1 (Strong Buy),
Hanesbrands and V.F. Corp. carry a Zacks Rank #2 (Buy).
COLUMBIA SPORTS (COLM): Free Stock Analysis
GILDAN ACTVWEAR (GIL): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
V F CORP (VFC): Free Stock Analysis Report
To read this article on Zacks.com click here.